To Do Your Own Taxes or Not? That is the Question!

2/1/2018 - By Deborah Rodin

With tax season just around the corner, the question of whether or not to prepare your own taxes should be on your radar screen. Why? Because that decision is wise to reassess periodically to account for any significant personal changes, and it is best done in advance of filing deadline pressures. Whether you are a veteran DIYer when it comes to preparing your taxes, or you have always outsourced your tax return preparation up until now, considering the options in light of your current circumstances can help you arrive at an informed decision. Let us take a look at four important components to examine: dollar costs, hidden costs, risk of error, and the impact of recent tax law changes.

Perhaps one of the most compelling reasons for doing your own taxes is the upfront savings of professional fees. The IRS offers a Free File Software Lookup Tool that is a resource for free e-filing available through independent tax return preparation services for income below $66,000, and it offers free fillable forms for income above $66,000. Also, tax preparation software such as TurboTax and TaxSlayer are also available for individuals to prepare their own tax returns at a nominal cost. While free and low cost alternatives are always attractive, the cost analysis does not end here. There are at least two aspects of cost comparison that you should keep in view to arrive at a prudent determination – actual costs and hidden costs.

Actual Costs

When weighing the dollar cost of professional fees, keep in mind that the actual cost of professional tax preparation is not always as high as it might seem at first glance, and it should be adjusted accordingly to arrive at an objective cost analysis. The invoice may say $650, for example, but the actual cost of your tax return preparation may be significantly less than that for at least two reasons.

Firstly, the amount you spend to have a tax professional prepare your return may be deductible on Schedule A (Form 1040) if you itemize deductions. That tax benefit can significantly reduce the actual out-of-pocket expense of the fees, because some of that is immediately coming back into your pocket via a reduction of your tax liability. The higher your tax bracket, the more that deduction is worth.

Secondly, if you are using a CPA to prepare your taxes (verses strictly a tax service), you are not merely paying for tax preparation. Bundled into the fee for preparation is the added value of expertise that can maximize the realization of your allowable tax benefits. Often, that increased refund (or significantly reduced tax bill) more than offsets the professional fees incurred. Furthermore, an accountant can leverage their expertise to recommend any beneficial changes you might implement for the following tax year.

Hidden Costs

One of the hidden costs of doing your own taxes is the cost of your time. The IRS estimates the national average total time burden for taxpayers filing the 2016 Form 1040 to be about 15 hours, but if there is also a Schedule C (business income of any kind), the estimate jumps to 22 hours total time. If in the current tax year you have married or divorced, had a baby, bought or sold property, became a member in a Limited Liability Corporation, or been the victim of a catastrophic event, the total time requirement could be considerably more than that. Be careful to arrive at a realistic estimate of the time it may take to prepare your own return, and then ask yourself the question, “What is my time worth?” Weighing the time cost of self-preparation against the dollar cost of professional fees will help you arrive at a well-informed determination of what’s most beneficial for you.

Risk Assessment

Finally, weighing the inherent risk of preparing your own return should be considered. Navigating the tax code is not for the faint of heart. It can be complex, and you may not be aware of the deductions you are entitled to (risking overpayment of taxes). Conversely, you may unwittingly take deductions that you are actually not entitled to (risking potential penalties and interest expenses imposed by the IRS). If you are using Google to find your answers, there are only a few reliable sources, such as the IRS, the U.S. Treasury, or original sources of tax law. These sites can be difficult to interpret. A certified public accountant has significant continuing education requirements by their licensing board to stay current with the tax law, which markedly reduces the risk of these types of mistakes being made on your return.

Tax Cuts and Jobs Act

The recent Tax Cuts and Jobs Act, signed into law on December 22, 2017, has changed the game ~ for some to their advantage, for others to their disadvantage. Whether your tax return was fairly straightforward before the recent act was passed, or more complex, the new provisions will have an effect on you. The good news is that these provisions are not effective until 2018. Though the detailed changes of the new tax law are outside the scope of this article, you may want to consult with a tax advisor to determine the effect of the new provisions on your personal return.

The Bottom Line

There is no “one-size-fits-all” answer to whether or not you should prepare your own tax returns or hire a trusted tax professional. Ask yourself if you have the time and expertise to do it right. Whether to join the numbers of taxpayers who file their own federal tax returns, or to stand in the majority ranks of those who employ tax professionals, is a personal decision that should be reassessed regularly – especially if you have had significant changes in your life circumstances.

About the Author | Deborah Rodin
Deborah Rodin is an Administrative Assistant in the Tax & Accounting Services Department of Saltmarsh, Cleaveland & Gund. She has over fifteen years of business experience in a variety of areas including private portfolio management, tax planning services, and marketing. She holds a B.A. in English and Art History from the State University of New York and she has earned a Series 7 License. If you have any questions about this article, please email Deborah Rodin.